Who Would Buy AMD? A Tough Question With No Easy Answers.

With the chipmaker Advanced Micro Devices once again on the ropes and about to make some significant cuts to its personnel, and with chatter about a major restructuring in the works, the rumor mills will inevitably turn once again to the speculation about who, if anyone, might interested in buying it.

It wouldn’t be the first time that AMD will have been the subject of “takeover chatter,” so let’s inoculate ourselves against putting much faith in the speculation by taking a look at the possibilities.

The one name that has come up repeatedly is Qualcomm, though others are certainly mentioned from time to time, including PC maker Dell. But for the sake of keeping things simple, let’s stick with Qualcomm.

Known primarily as the supplier of chips for wireless phones, it has in recent years expanded significantly into supplying ARM-based processors for notebook PCs running Windows RT. Dell and Samsung are said to be customers of Qualcomm’s line of chips.

Qualcomm is said to covet the server market, where, not so long ago — well, about five years ago, anyway — AMD’s Opteron chips were competitive enough to cause significant headaches for the market’s perennial dominating force, Intel. AMD knows the server business well enough, the argument goes, that its expertise could be turned toward helping Qualcomm bring an ARM-based alternative to the server market.

AMD also has strong ties with chip foundries upon which Qualcomm and numerous other so-called “fabless” chip companies rely to build its chips. AMD has historical ties with the world’s second largest foundry, GlobalFoundries. That company is essentially the former manufacturing arm of AMD, spun out in a complicated transaction that included investments from the sovereign wealth funds of the Arab state of Abu Dhabi in 2009.

On top of that, AMD also owns a portion of the leading-edge 28-nanometer manufacturing capacity of the world’s largest chip foundry company, Taiwan Semiconductor Manufacturing Corp, a.k.a. TSMC. Qualcomm, the thinking goes, can’t help but be tempted, for the manufacturing relationships alone.

And with AMD shares trading within 92 cents of its most recent historic low, its market capitalization has dropped to below $2 billion. Even after assigning a gentleman’s premium of 50 percent, which it wouldn’t necessarily command, AMD could, given its valuation of $1.94 billion as of Friday, be taken out for less than $3 billion.

That’s cash that Qualcomm certainly has: As of June, its balance sheet showed combined cash and short-term investments of $13.4 billion, so on paper there’s no financial reason that prevents such a deal from getting done.

But there’s a big piece of the puzzle that most people who speculate about a deal such as this always forget to consider: AMD would be an incredibly complicated company to buy.

As anyone who knows their history of the chip industry will you, anyone who even thinks about buying AMD quickly learns that they will eventually have to deal with Intel. For decades, Intel and AMD have operated under a series of complicated and mostly secret patent cross-license agreements that give AMD access to the crown jewels of Intel’s intellectual property — the x86 instruction set.

The name dates back to the days when PC processors were known as “386” and “486,” and are fundmental pieces of what makes a PC a PC. The patents are also important to servers, and as Intel has slowly worked its way into selling chips for some tablets and smartphones, to those devices, as well.

When AMD first sought to spin off its manufacturing operations into the company that became GlobalFoundries, Intel and AMD were in the middle of a bitter lawsuit. Intel argued, not without merit, that AMD couldn’t assign its access to the x86 patents without first getting Intel’s approval. Ultimately, they settled the dispute as part of a broader settlement hashed out in a series of difficult negotiations, with the help of a mediator on the Hawaiian island of Maui in late 2009.

Part of that settlement limits Intel’s behavior in such a scenario. It agreed to hold off on suing to block anyone seeking to purchase any of its competitors — AMD is really the only one — for one year, and negotiate first. The end result is that any company who reaches a deal in principle to buy AMD, will then have to turn right around and negotiate with Intel. And those negotiations could easily fail and send both parties to court.

So, on Monday, or whatever day the rumor mill starts churning out chatter that AMD is going to be taken out, don’t think too hard about it. It’s probably not true.

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